Is renting a trailer that only hauls a manufacturer's industrial waste to a treatment center exempt as production equipment?

Plain-English summary

Alox Corporation runs a manufacturing process that generates industrial waste. It rents a trailer used exclusively to remove the waste from its plant and deliver it to water pollution control centers. It asked whether the trailer rental qualifies for the production-equipment exemption from sales tax.

The Department held the rental is taxable — the trailer isn't production equipment.

• The exemption. Section § 1115(a)(12) exempts machinery or equipment — including rentals — used directly and predominantly in producing tangible personal property for sale by manufacturing.
• Pollution-control gear has a specific test. Equipment used to dispose of industrial waste as part of preventing water or air pollution is treated as used directly and predominantly in production only if it is used predominantly to actually treat, bury, or store the waste (20 NYCRR 528.13(d)).
• Transport isn't treatment. Alox's trailer merely transports the waste — it doesn't treat, bury, or store it — so it doesn't meet the test.
• Result. The trailer is not production machinery or equipment, so the rental payments are subject to sales tax.

What this means for you

The production exemption for pollution-control equipment is about processing the waste, not moving it. Equipment that treats, buries, or stores production waste can qualify as used "directly and predominantly in production." Equipment that only hauls the waste to a treatment site does not.

"Directly and predominantly" is a real limit. Even for a manufacturer, exemption depends on what the specific machine does. A trailer, truck, or conveyor whose job is transportation generally falls outside the production exemption.

Renting doesn't change the analysis. The exemption applies to rentals as well as purchases, but the equipment still has to meet the direct-and-predominant-use test. A rental of non-qualifying equipment is taxable, just like a purchase would be.

Common questions

Q: I'm a manufacturer renting equipment to deal with my production waste. Is that exempt?
A: Only if the equipment is used predominantly to actually treat, bury, or store the waste. If it merely transports the waste, the rental is taxable.

Q: My trailer hauls waste to a pollution-control center. Does that count as pollution control?
A: Not for this exemption. The regulation requires the equipment to treat, bury, or store the waste. Transporting it doesn't qualify.

Q: Does the exemption ever cover rentals?
A: Yes — § 1115(a)(12) applies to rentals of qualifying production machinery and equipment. But the equipment must still be used directly and predominantly in production, which this trailer isn't.

Citations and references

Statutes:

• Tax Law § 1115(a)(12) — exemption for machinery/equipment used directly and predominantly in production

Regulations:

• 20 NYCRR 528.13(d) — pollution-control equipment treated as production equipment only if used to treat, bury, or store waste

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/sales_ao_1984.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/sales/a84_5s.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-84(5)S
Sales Tax
March 6, 1984

Taxpayer Services Division
Technical Services Bureau
STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. S831212A

On December 12, 1983 a Petition for Advisory Opinion was received from Alox Corporation,
3943 Buffalo Avenue, Niagara Falls, New York 14303.
The issue raised is whether rental payments for a trailer used by a manufacturer exclusively
in transporting industrial waste to pollution control centers constitute receipts from the purchase of
machinery or equipment used directly in production so as to qualify for the exemption from sales tax
provided for under section 1115(a)(12) of the Tax Law.
Petitioner states that it is engaged in a manufacturing process which generates industrial
waste. Petitioner rents a trailer which is used exclusively to remove the waste from its plant and to
deliver it to water pollution control centers.
Section 1115(a)(12) of the Tax Law provides for an exemption from sales tax with respect
to machinery or equipment purchased (including rentals) "for use or consumption directly and
predominantly in the production of tangible personal property . . . for sale, by manufacturing, .... "
The Sales and Use Tax Regulations provide that machinery and equipment "used for disposing of
industrial waste, as a part of a process for preventing water or air pollution, will be considered as
being used directly and predominantly in production . . . if (i) the machinery and equipment is
purchased by a manufacturer and used predominantly to actually treat, bury, or store waste materials
from a production process .... "20 NYCRR 528.13(d).
Accordingly, since Petitioner's trailer is not used to actually treat, bury or store waste
materials, but merely to transport the waste, it does not constitute machinery or equipment used
directly and predominantly in production. Amounts paid as rental for such trailer are accordingly
subject to tax.

DATED: February 15, 1984

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

s/FRANK J. PUCCIA
Director
Technical Services Bureau

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR